So what is demand response? It is a change in USAGE of energy of an electric utility customer to better match the demand for power with the supply. It can also be thought of as a method of how electric companies compensate for the extra energy used during a “peak time”. When you hear “peak time”, think of a hot Alabama summer day when everyone is running their air conditioners at 2 PM.
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What is demand?
Electric energy cannot be easily stored, so utilities have traditionally matched demand and supply by throttling the production rate of their power plants, taking generating units on or off line, or importing power from other utilities. But there are limits to what can be achieved on the supply side, as some generating units can take a long time to come up to full power, some may be very expensive to operate, and demand can be greater than the capacity of all the available power plants put together. Demand response is one of the solutions to these limits and seeks to adjust the demand for power instead of adjusting the supply.
At the consumer level, demand response is a way for certain areas to maintain adequate power during busier peak times and can save them money in the process. One example of this was in 2016, when the New York City grid “shed load” by reducing power at a number of public services, including the Metropolitan Transportation Authority; and utility ConEdison activated a voluntary program to adjust consumers’ air-conditioner thermostats at peak hours. In exchange for participating in these voluntary programs, electricity customers received a rebate varying in amount based on participation.
To help visualize what this looks like, think about the traffic on an interstate. Everyone suffers if the traffic is at a standstill; but once portions of traffic begins taking proper detour routes or delaying their trip, it allows everyone to get to their destination faster. Similarly, if some consumers participate in demand response by lessening their own energy use, or when they use it, then everyone on the grid can maintain their energy usage during peak hours at cheaper prices.
While the main goal of demand response is to maintain energy availability through all times of the year, consumers can earn financial rewards by participating. In many states, regulators create incentives for utilities to use less energy, especially during peak hours of the day. Demand response programs were originally put in place to avoid having to turn on “peaker plants,” or auxiliary power plants that may be used only 10 days a year to meet the traffic of high demand days. You can imagine how expensive these “peaker plants” are to operate by thinking about if we added lanes to our highways just to accommodate Black Friday traffic.
Instead of building new power plants to meet demand, utilities instead can rely on demand response. For example, in New York, 543 megawatts of demand reduction are available just from commercial and industrial customers participating in demand response, which is about the same capacity as a medium size power plant. Keeping these plants idle also helps keep the price of power down, which saves money for the entire customer base. Instead of having to call on very expensive power generators to meet high demand in the late afternoon, grid operators can reduce the load in the system and avoid paying peak-time pricing.
Much like consumers, demand response saves the system money, sometimes on the upper end of millions a week, but the program also creates a better and safer grid in doing so. The grid benefits from not needing to build any extra power plants to supply power during those “peaker times”, which are only about 10 days out of the year, which in turn would require extra power to operate and build. Furthermore, if consumers are using the demand response program, the grid will be less taxed for power output on a daily basis. By conserving energy, grid alterations can be delayed or significantly reduced. In an electricity grid, electricity consumption and production must balance at all times; any significant imbalance could cause grid instability or severe voltage fluctuations, and cause failures within the grid. Don’t forget that demand response can ALSO be used to INCREASE demand during periods of high supply and/or low demand, which, unchecked, could cause an imbalance.
Overall, demand response is beneficial to everyone involved. It saves consumers, businesses, and utilities, money and helps the grid run more efficiently. If given the opportunity, everyone should opt-in to this program for themselves, the grid, and the environmental benefits from using less energy. And if you don’t currently have the opportunity, ask your utility and your Public Service Commission about starting demand response programs to save you money.
Related: Probing Residential Demand Charges